With the inflation beating records, the last year has been quite a hassle. Not only for consumers, but for investors as well. Worldwide stock markets have shown a significant decrease in value which clearly shows that investors worry about the inflation. Philip Lane, chief economist of European Central Bank, stated that interests from leading banks should be raised even more to keep any increasing inflation at bay. But the inflation seems to have reached its tipping point, as Germany, Spain and Belgium are presenting positive numbers. For many economists that’s the sign for an approaching recession. That’s because the high interest hurts the economic growth. Although that sounds threatening, it has a positive side-effect that we gladly analyze from here.
How the recession works on your assets
In general, the higher the inflation, the more the value of money decreases. When having debts, that’s a good thing. When it comes to assets, not so much. The only reliable way for most people to combat inflation is to build assets that outperform, or at least match the market. You can do that by investing. How you do that? There are several ways. For example by spreading your investments in index funds. That spreads the risk. It defends the value of your assets. Another way to protect the value is to buy and sell in small chunks. Avoid entering the market with everything you have. Start with 20% to 30%. Reserve 40% to 50% for another opportunity to enter later on.
The necessity of a recession
The US inflation number dropped significant by surprise recently. The last two US federal meetings as well as inflation data coming from various governments, suggest that inflation is cooling off. The equity markets responded quickly. Investors seem to be anticipating that the worst is over. It seems that we have reached the inflation peak already a few months ago.
That means central banks would have to raise interest rates a little less quickly than they alluded to earlier. To discuss the necessity of a recession to secure the value of your assets, we can simply explain this by looking at the example of the US economy. It does not have to be a problem at all for the US dollar if the United States enters a recession. However, other currencies will further weaken against the United States Dollar and the unrest in the financial markets will increase. “It looks like the stock market may retreat from the recent highs,” says Anupam Kumar, Chief Investment Officer at DHF Capital S.A., “There will be more buying opportunities at lower levels in the coming weeks and early 2023.”
How to keep your mind on the positive
However, for as long the war in Ukraine determines the economic environment , the behavior of politics stays uncertain. That demands a cautious eye on any movements in the market. Movements that can go from high to low, or the other way around. Kumar: *“The tough time is still not over for sure. But every time there is a bear market or recession kind-off environment, it creates huge upside opportunity in the oversold market condition.” *
Cooling off inflation, softening interest rates, China's relaxation in the recent zero-covid policy and several other parameters has started favoring the market. To keep the positive vibes you need for investing, it is advisable to go back to the basics. That means diversifying your portfolio and choose strong fundamentals such as companies with a better price to earnings ratio.
DHF Capital takes away the risk
Investing with DHF Capital S.A. means a solid asset partnership, in ups and downs. DHF Capital S.A. always focuses on risk management for its clients in all conditions of the market. When it comes to the beauty of trading, the key is that every market condition can be favorable with a cautious and sturdy risk-management approach. Our guaranteed return policy minimizes your risk as an investor which makes times like these even less troubling. Having any questions regarding this article? Feel free to get in touch with us.